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The BCG matrix, also known as the Boston matrix or the growth share matrix, is a strategic planning tool that helps companies analyze their product portfolio and allocate resources accordingly. The creation of the BCG matrix was a collaborative effort by the employees of the Boston Consulting Group (BCG), a leading management consulting company. Alan Zakon, who would later become the CEO of BCG, first sketched the matrix and then refined it together with his colleagues. The essay “The Product Portfolio” by Bruce Henderson, the founder of BCG, made the concept widely known in 1970.
BCG matrix is based on the idea that products can be classified into four categories based on their relative market share and market growth rate, which are important factors in strategic marketing models.
The four categories of the BCG matrix are:
Stars: Products with high market share and high growth rate. These are the products that generate the most revenue and profit for the company, but also require significant investment to maintain their competitive advantage and sustain their growth. Stars are the future cash cows of the company.
Cash cows: Products with high market share and low growth rate. These are the products that have a stable and dominant position in a mature market, and generate a steady stream of cash flow for the company. Cash cows require little investment and can be used to fund other products in the portfolio.
Question marks: Products with low market share and high growth rate. These are the products that have a potential to become stars, but also face a lot of uncertainty and risk. Question marks require a lot of investment to increase their market share and compete with the market leaders, but they may also fail to do so and become dogs.
Dogs: Products with low market share and low growth rate. These are the products that have a weak position in a declining market, and generate little or no profit for the company. Dogs are usually a drain on resources and should be divested or discontinued.
To plot products on the The BCG matrix, also known as the Boston matrix, you need to follow these steps:
The CG matrix, also known as the growth share matrix, can help you make strategic decisions about which products to invest in, maintain, harvest, or divest, based on their relative performance and potential.
Here are some general guidelines:
Stars: Invest in stars to maintain or increase their market share and growth rate. Stars are your most valuable products and should receive the highest priority and attention. You can use different strategies to support your stars such as product innovation, marketing differentiation, distribution expansion, pricing optimization, etc. This is also known as BCG matrix star strategy.
Cash cows: Maintain cash cows to maximize their cash flow and profitability. Cash cows are your most stable products and should receive moderate attention and investment. You can use different strategies to protect your cash cows such as cost reduction, customer loyalty programs, quality improvement, pricing stability, etc.
Question marks: Decide whether to invest in or divest question marks based on their potential and feasibility. Question marks are your most risky products and should receive careful analysis and evaluation. You can use different criteria to assess your question marks such as market attractiveness, competitive advantage, strategic fit, financial return, etc. Question marks represent a growth opportunity for the company, but also a challenge.
Dogs: Divest or discontinue dogs to free up resources and focus on more profitable products. Dogs are your least valuable products and should receive minimal attention and investment. You can use different methods to exit your dogs such as selling them off, licensing them out, shutting them down, etc.
Market share and growth rate are two important metrics that can help you evaluate the performance and potential of your business or product in each market. Market share is the percentage of the total sales or revenue that your business generates in a specific market, compared to your competitors. Growth rate is the percentage change in the size or value of a variable over a certain period of time such as a year, a quarter, or a month.
To calculate market share, you need to know your business’s total sales or revenue for a given period and the total sales or revenue of your industry for the same period. Then, you can use this formula:
For example, if your business sold $10,000 worth of products in a month, and the total industry sales for that month were $100,000, then your market share would be:
Market share = ($10,000 / $100,000) x 100 = 10%
This means that your business captured 10% of the market in that month.
To calculate growth rate, you need to know the value of a variable at the beginning and at the end of a period. Then, you can use this formula:
For example, if your business had $5,000 in sales in January and $6,000 in sales in February, then your monthly growth rate would be:
Growth rate = (($6,000 - $5,000) / $5,000) x 100 = 20%
This means that your business grew by 20% from January to February.
You can also calculate the annual growth rate by using the compound annual growth rate (CAGR) formula. This formula takes into account the compounding effect of growth over multiple periods. The CAGR formula is:
For example, if your business had $5,000 in sales in January 2022 and $7,500 in sales in January 2023, then your annual growth rate would be:
CAGR = (($7,500 / $5,000) ^ (1 / 1)) - 1 CAGR = (1.5 ^ 1) - 1 = 50%
This means that your business grew by 50% from January 2022 to January 2023.
You should review and update your BCG matrix regularly to reflect changes in your product portfolio and market conditions. You should monitor the performance and potential of each product or business unit over time, and adjust your strategy planning and resource allocation accordingly.
Reviewing and updating your BCG matrix can help you keep track of your progress and results, and identify new opportunities and challenges. You can use some questions to guide your review and update, such as:
To illustrate how the BCG matrix can be applied in practice, let’s look at some examples of popular brands and their products or services.
Example 1: Coca-Cola
Coca-Cola is a world-leading ready-to-drink beverage company that has more than 500 soft drink brands, from Fuse Tea to Oasis to Lilt to Powerade. But none of them is anywhere close to the coke brand in terms of awareness, revenue, and profit.
Example 2: Apple
Apple is a global technology company that designs, develops, and sells consumer electronics, software, and online services. It is known for its innovative and high-quality products, such as the iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, and more.
These are some examples of how the BCG matrix can be used to analyze different brands and their products or services. The BCG matrix can help managers to evaluate their current portfolio and make strategic decisions about where to invest, where to divest, where to maintain, and where to develop new products or services.